Income tax return (ITR): Beware! Did you make these mistakes? How not to lose money

Income tax return (ITR): Section 80 C of the Income Tax Act allows you deduction up to Rs 1.50 lakh in respect of certain items of investments and expenses. These deductions are subject to some restrictions. Let us see what they are.

1. Home loan repayment
Deduction for repayment of home can be claimed only if the loan has been taken from specified financial institutions like banks, housing finance companies. You can also avail the benefit if you have availed home loan from your employer, provided your employer is a public limited company, central government, state government or a board, a corporation or a university established by law. 

In respect of loans taken from your friends and relatives, you can claim deduction under Section 24(b) for interest. But the deduction under Section 80 C for repayment of principal is not available in such case.

Deduction is available for residential property only and not for commercial property. Also, the deduction can only be claimed after you have obtained possession of the house, even though the repayment of home loan might have begun before completion of construction.

In case you sell the property within five years from the end of the financial year, in which possession of the property was taken, all deductions allowed earlier shall be reversed and are treated as income of the year in which the property is transferred. But if the home loan is prepaid , there is no reversal of the tax deduction. What is interesting is that only the deduction allowed for repayment of principal amount is reversed, but the deduction allowed for repayment of interest stays.

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2. Life insurance premium
An individual can pay and claim deduction for life insurance premium for himself, spouse and children, whether dependent or not. There is a lock-in period of two years. You cannot terminate or let the policy lapse before completion of two years. Failing this deductions allowed in the earlier years are reversed and added to your income of the current year.

Source: DNA Money